COMMUNICATIONS,
INCORPORATED,
Petitioner-Appellee,
v.
CNS COMMUNICATIONS, a/k/a CNS
Communications, Limited,
Respondent-Appellant.
No. 02-1089
COUNSEL
ARGUED: Lauren Anne Greenberg, THALER LIEBELER, L.L.P.,
Washington, D.C., for Appellant. Anessa Abrams, SCHMELTZER,
APTAKER & SHEPARD, P.C., Washington, D.C., for Appellee. ON
BRIEF: Paul S. Thaler, Lars H. Liebeler, THALER LIEBELER,
L.L.P., Washington, D.C., for Appellant. Eric L. Yaffe,
SCHMELTZER, APTAKER & SHEPARD, P.C., Washington, D.C.,
for Appellee.
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OPINION
PER CURIAM:
CNS Communications, Ltd. appeals the district courts order confirming an arbitration award entered in favor of e.spire Communications, Inc. For the reasons set forth below, we affirm.
I.
CNS is a telecommunications company that provides its customers
with prepaid calling cards. In 1999, CNS and e.spire entered into a
series of agreements, whereby e.spire contracted to provide long distance and toll-free telecommunications services for resale by CNS.
Pursuant to preliminary contracts, e.spire began to provide services to
CNS, and on June 8, 2000, the parties met in Virginia to finalize their
respective obligations. At that meeting, CNSs representative signed
a Master Services Agreement (MSA), which contained an arbitration
clause.1 Invoices for services rendered by e.spire to CNS under the
parties agreements totaled $9,400,456.28. CNS paid e.spire a total of
$2,678,941.00, leaving a balance due of $6,721,515.28.
On October 27, 2000, e.spire filed a Demand for Arbitration with
the American Arbitration Association (AAA). CNS filed a petition to
stay arbitration in the Supreme Court of the State of New York and
requested the court to vacate the demand for arbitration, asserting that
no valid arbitration agreement existed, and e.spire removed the action
to the United States District Court for the Southern District of New
York. On January 26, 2001, the parties entered into a settlement
1
As is discussed below, infra at 5-6, CNS claims that the MSA is not
a valid, enforceable contract but instead is a proposed contract and that
CNSs representative signed the MSA "as a sign of good faith even
though the parties had not agreed upon material terms." (Appellants Br.
at 6.)
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plus interest at the rate of 8% per annum, attorneys fees, and other
related costs.
Thereafter, e.spire moved to confirm the arbitration award in the
United States District Court for the Eastern District of Virginia. CNS
opposed this motion, claiming that the award should be vacated. Finding no reason to vacate the arbitration award, the district court granted
e.spires motion. CNS moved for reconsideration pursuant to Federal
Rule of Civil Procedure 60(b), and the district court denied this
motion. CNS filed a timely notice of appeal. On appeal, CNS claims
that the district court erred by refusing to vacate the arbitration award
on the basis that the arbitral panel exceeded its powers, by refusing
to vacate the arbitration award in light of misconduct by the arbitral
panel, and by concluding that the arbitral panels award was not a de
facto default judgment. We review the district courts decision confirming the arbitration award de novo and its factual findings for clear
error. Peoples Security Life Ins. Co. v. Monumental Life Ins. Co., 991
F.2d 141, 145 (4th Cir. 1993).
II.
Section 9 of the Federal Arbitration Act (the FAA) provides that
any time within one year after an arbitration award is made, a party
to the arbitration may apply to a federal district court for an order
confirming the award. 9 U.S.C.A. 9 (West 1999); Apex Plumbing
Supply, Inc. v. U.S. Supply Co., 142 F.3d 188, 191-92 (4th Cir. 1998)
(holding that, where parties have not specified in their agreement the
court to which they must apply for confirmation of the award, venue
is proper in any federal district court). The federal courts review of
an arbitration award is tightly circumscribed. Union Pac. R.R. v.
Sheehan, 439 U.S. 89, 91 (1978) (per curiam) (stating that the scope
of review of arbitration award is "among the narrowest known to the
law" (internal quotation marks omitted)); Upshur Coals Corp. v.
United Mine Workers of America, 933 F.2d 225, 229 (4th Cir. 1991)
(noting that arbitration awards are "accorded great deference"). The
court must confirm the arbitration award unless the award is vacated,
modified, or corrected pursuant to section 10 or 11 of the FAA. 9
U.S.C.A. 9 ("[A]t any time within one year after the award is made
any party to the arbitration may apply to the court . . . for an order
confirming the award, and thereupon the court must grant such an
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The parties also agreed that the Southern District of New York "retain[ed] jurisdiction over this matter to enforce the terms of this agreement." (J.A. at 123.) Neither party, however, sought enforcement of the
agreement in the Southern District of New York.
4
CNS claims that giving the settlement agreement this construction is
illogical because CNS would have gained nothing from such an agreement. We disagree. The agreement plainly allowed CNS the opportunity
to have the issues of locale and the appointment of the arbitrator
reopened.
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exceeded its authority because the substantive dispute was not arbitrable is baseless.
Further, the district court did not improperly rule on the issue of
arbitrability in the first instance. As CNS conceded at oral argument,
the arbitral panel found that the dispute was arbitrable and that it possessed authority to resolve the dispute. (J.A. at 29-30 ("Pursuant to a
settlement agreement entered into between e.spire and CNS . . . CNS
agreed to arbitrate with e.spire . . . e.spires claims for payment for
services provided to CNS . . . ." (internal quotation marks omitted)));
(J.A. at 37 ("e.spire and CNS were parties to three executed and
enforceable master service agreements dated August 1999, January
2000, and June 2000.").) The district court discussed the arbitrability
of the dispute only in reference to the question presented by CNS
whether the arbitral panel exceeded its authority. In light of the unambiguous terms of the settlement agreement and the arbitral panels
conclusion regarding arbitrability, the district courts finding that the
panel did not exceed its authority undoubtedly was correct. Thus,
10(4) does not provide a basis for vacating the arbitration award.
B.
CNS also argues that the arbitral panel engaged in misconduct
within the meaning of 10(3) by refusing to hear evidence "pertinent
and material to the controversy" when it limited CNSs participation
in the arbitration hearing by prohibiting it from introducing exhibits
or calling witnesses at the hearing after CNS failed to disclose any
proposed witnesses or exhibits.5 9 U.S.C.A. 10(3). At the outset, we
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note that CNS has not identified, either to the arbitral panel or this
court, any evidence that it would have presented at the hearing but for
the panels limitation on its right to present evidence. Consequently,
it is impossible to determine whether any evidence that was excluded
was "pertinent and material" to the controversy.
Moreover, even assuming the exclusion of pertinent and material
evidence, not every failure of an arbitrator to receive relevant evidence constitutes misconduct requiring the vacatur of an arbitrators
award. Instead, a federal court may vacate an arbitrators award only
if the arbitrators refusal to hear pertinent and material evidence
deprives a person of a "fundamentally fair hearing." UMWA v. Marrowbone Dev. Co., 232 F.3d 383, 385, 388 (4th Cir. 2000); Hoteles
Condado Beach, La Concha & Convention Ctr. v. Union de Tronquistas Local 901, 763 F.2d 34, 40 (1st Cir. 1985) (providing that
exclusion of relevant evidence only constitutes misconduct when the
exclusion unduly prejudices the rights of a party to the arbitration proceedings); AAA Commercial Arbitration R. 32 (providing that each
party must be "given a fair opportunity to present its case"). The limitation on CNSs right to present evidence at the hearing did not
deprive CNS of a fundamentally fair hearing. To the contrary, the
limitation was necessary to prevent undue prejudice to e.spire that
would have resulted from CNSs failure to disclose its proposed evidence. CNS was on clear notice from the Scheduling Order of the
deadlines and that the deadlines in the Order would be "strictly
enforced." (J.A. at 249.) Additionally, although the arbitral panel limited CNSs participation in the hearing, it afforded CNS many opporto present evidence in support of its position, but that "[t]he arbitrator has
the discretion to vary this procedure, provided that the parties are treated
with equality and that each party has the right to be heard and is given
a fair opportunity to present its case," R. 32(a), and that "[t]he arbitrator,
exercising his or her discretion, shall conduct the proceedings with a
view to expediting the resolution of the dispute and may direct the order
of proof, bifurcate proceedings and direct the parties to focus their presentations on issues . . . ." R. 32(b). Rule 33 states that "[t]he arbitrator
shall determine the admissibility, relevance, and materiality of the evidence offered . . . ." R. 33(b). Finally, the Rules permit an arbitration to
"proceed in the absence of any party or representative who, after due
notice, fails to be present or fails to obtain a postponement." R. 31.
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tunities to present its case. The panel allowed CNS the opportunity to
attend the hearing, to make opening and closing statements, and to
cross examine e.spires witnesses. CNS did none of these things.
After the hearing, the arbitral panel again informed CNS of its right
to file a document in the form of a closing brief; CNS also did not
take advantage of this opportunity.
Notably, CNS does not contend that it lacked notice of the deadlines set forth in the Scheduling Order or that it was unaware that
non-compliance would affect its right to present evidence at the hearing. It claims only that its non-compliance with the Scheduling Order
was the result of its belief that it did not need to comply with the
Scheduling Order because it was told by Jones that the arbitration
hearing would not take place until CNSs jurisdictional motion was
resolved. Regardless of the merits of CNSs jurisdictional argument,
this was an unreasonable strategy. CNS has not pointed to any document or communication from the arbitral panel suggesting that CNS
was informed that it could disregard the Scheduling Order while it
awaited the arbitral panels ruling on the motion. All of the documents from the arbitral panel were unambiguous as to the relevant
deadlines and the date of the arbitration hearing. Moreover, CNS did
not seek a continuance of the hearing on the ground that a jurisdictional motion was pending, as it was entitled to do pursuant to Rule
30. See AAA Commercial Arbitration R. 30 ("The arbitrator may
postpone any hearing upon . . . request of a party for good cause
shown."). Nor did CNS attend the hearing to present the jurisdictional
motion to the panel. Similarly, it did not submit a brief, either prior
to or after the hearing, arguing that the arbitral panel lacked jurisdiction, and it did not inform the panel of Joness alleged assurances as
a basis for reconsidering the panels limitation on CNSs right to present evidence at the hearing. Thus, we are unpersuaded by CNSs
claim that it was justified in ignoring almost every aspect of the arbitration process. Accordingly, we agree with the district court that the
arbitral panel did not engage in misconduct within the meaning of
10(3) by limiting CNSs presentation of evidence at the arbitration
hearing as a result of CNSs failure to identify any witnesses or exhibits. Cf. Trans Chem. Ltd. v. China Natl Machinery Import & Export,
161 F.3d 314, 319 (5th Cir. 1998), affg 978 F. Supp. 266, 307 (S.D.
Tex. 1997) (concluding that arbitral panel did not engage in misconduct by enforcing its scheduling order).
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C.
CNS next argues that the arbitral panels failure to rule on its jurisdictional motion amounted to misconduct within the meaning of
10(3). As we note above, supra at 5-7, although the arbitral panel
did not rule on CNSs motion, it did find that it possessed jurisdiction,
a finding that was amply supported by the record. Additionally, to the
extent Joness failure to forward the motion to the arbitral panel was
erroneous,6 CNS had countless opportunities to submit the motion
directly to the arbitral panel, yet it did not take advantage of any of
these opportunities. We find no support in the text of section 10(3),
or the caselaw interpreting that section, for vacatur of an arbitration
award on the basis of a procedural flaw that could have been, and
likely would have been, rectified by the arbitral panel had the
aggrieved party brought the error to the panels attention. Accordingly, we conclude that the district court correctly found that the
alleged procedural error is an insufficient basis to justify vacatur of
the arbitration award under 10(3).
III.
Finally, CNS contends that the district court erred by denying its
motion for reconsideration. In its motion for reconsideration, CNS
argued that the arbitration award in favor of e.spire amounted to a
default judgment and that CNS should be relieved from the judgment
pursuant to Federal Rule of Civil Procedure 60(b)(1), which provides
that a court may vacate a final judgment based upon "excusable
neglect." This argument lacks legal, as well as factual, support.
The Federal Rules of Civil Procedure apply in proceedings to confirm an arbitration award "only to the extent that matters of procedure
are not provided for in [Title 9]." Fed. R. Civ. P. 81(a)(3); Deiulemar
Compagnia Di Navigazione v. M/V Allegra, 198 F.3d 473, 481 (4th
Cir. 1999). "Under Rule 81(a)(3), the Federal Rules fill in only those
procedural gaps left open by the FAA." Id. at 482 (internal quotation
6
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